UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
File No. 333-7686
REGISTRATION STATEMENT
FORM S-2
Under The Securities Act of 1933
As filed with the Securities and Exchange Commission on September 15, 1998
PRO-FAC COOPERATIVE, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-6036816
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
Copy to:
STEPHEN R. WRIGHT, GENERAL MANAGER CATHERINE A. KING, ESQ.
Pro-Fac Cooperative, Inc. Harris Beach & Wilcox, LLP
90 Linden Oaks 130 East Main Street
Rochester, New York 14625 Rochester, New York 14604
(716) 383-1850 (716) 232-4440
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
If the registrant elects to deliver its latest annual report to security holders
or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this
form check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
Proposed Maximum
Title of Each Class of Amount Being Aggregate Offering Proposed Maximum Amount of
Securities Being Registered Registered Price Per Unit Aggregate Offering Price Registration Fee*
<S> <C> <C> <C> <C>
Retains $7,000,000 100% $7,000,000 $2,121
Class A Cumulative Preferred Stock**
Total $2,121
<FN>
* As permitted by Rule 429(a), the Prospectus included herein also relates to 581,564 shares of Common Stock (as to which a
filing fee of $1,338.65 was paid) covered by Registration Statement No. 33-60273.
** Representing Class A Cumulative Preferred Stock issuable at maturity of Retains. No additional fee is required pursuant
to Rule 457(i).
</FN>
</TABLE>
PRIOR REGISTRATION - RULE 429
As permitted by Rule 429(a), the Prospectus included herein also relates to
Registration Statement No. 33-60273.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay the effective date of this Registration Statement
until the registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall have become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED September 15, 1998
PRO-FAC COOPERATIVE, INC.
581,564 Shares of Common Stock
$7,545,000 Retains
Pro-Fac Cooperative, Inc. ("Pro-Fac") is a New York cooperative corporation with
capital stock which markets the agricultural products grown by its members, all
of whom are its common shareholders, through Agrilink Foods, Inc., a food
processing corporation which is a wholly-owned subsidiary of Pro-Fac. This
Prospectus pertains to common stock, the allocation by Pro-Fac to its members of
certain credits representing payments by Pro-Fac for crops purchased,
denominated "retains," and to the issuance by Pro-Fac of its Class A Cumulative
Preferred Stock ("the Cumulative Preferred Stock") to members and other persons
holding such retains. The Cumulative Preferred Stock is traded on the Nasdaq
National Market System under the symbol "PFACP."
SEE THE SECTION OF THIS PROSPECTUS ENTITLED "RISK FACTORS,"
WHICH BEGINS ON PAGE 4, FOR CERTAIN SPECIAL FACTORS
RELATING TO THIS OFFERING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Issuer (2)
----------- --------------- -----------
<CAPTION>
<S> <C> <C> <C>
Common Stock Per Share $ 5.00 0.0 $ 5.00
Total: $2,907,820 $2,907,820
Retains Per Unit: 100% 0.0 100%
Total: $7,545,000 0.0 $7,545,000
<FN>
(1) The securities described in this Prospectus are to be offered and
distributed directly by the issuer through officers of Pro-Fac, without the
use of any underwriter or dealer, and no discounts, commissions or other
compensation are to be allowed or paid therefor.
(2) Before deducting expenses estimated at $29,621.
</FN>
</TABLE>
The date of this Prospectus is , 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
Pro-Fac is subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Reports and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, NW, Washington, DC and at its regional offices located at 7
World Trade Center (Suite 1300), New York, New York 10048 and at 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth St., NW, Washington, DC 20549, at prescribed rates. Pro-Fac's
Cumulative Preferred Stock is traded on the Nasdaq National Market. Reports and
other information concerning Pro-Fac can be inspected at such exchange. Further,
the Commission maintains a Web site at http://www.sec.gov that contains reports
and other information regarding Pro-Fac.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus is accompanied by Pro-Fac's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998 which is incorporated by reference herein.
REPORTS TO SHAREHOLDERS
Pro-Fac furnishes annual reports to its members and shareholders on Form 10-K
which contain audited financial statements.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Summary of Prospectus...................................................................................................... 1
Risk Factors............................................................................................................... 4
Ratio of Earnings to Fixed Charges and Preferred Dividends................................................................. 6
Use of Proceeds............................................................................................................ 7
Determination of Offering Price........................................................................................... 7
Business of Pro-Fac........................................................................................................ 7
Description of Pro-Fac Securities.......................................................................................... 11
Restrictions on Dividends and Other Distributions to Members and Investors................................................. 15
Certificates for Securities................................................................................................ 15
Plan of Distribution....................................................................................................... 16
Experts.................................................................................................................... 16
</TABLE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
in connection with the transactions described herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by Pro-Fac. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities covered by this Prospectus in
any state to any person to whom it is unlawful to make such offer or
solicitation in such state. Neither the delivery of this Prospectus nor the
distribution of any security covered by this Prospectus shall, under any
circumstances, create an implication that there has been no change in the facts
herein set forth or in the affairs of Pro-Fac since the date hereof.
<PAGE>
1
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety and should be read in
conjunction with the registrant's Annual Report on Form 10-K for the year ended
June 27, 1998, which includes more detailed information and financial
statements.
General Development of Business: Pro-Fac Cooperative, Inc. ("Pro-Fac" or "the
Cooperative") is an agricultural cooperative formed in 1960 under New York law
to process and market crops grown by its members. Pro-Fac crops include fruits
(cherries, apples, blueberries, peaches, and plums), vegetables (snap beans,
beets, cucumbers, peas, sweet corn, carrots, cabbage, squash, asparagus,
potatoes, turnip roots, and leafy greens), and popcorn. Only growers of crops
marketed through Pro-Fac (or associations of such growers) can become members of
Pro-Fac; a grower becomes a member of Pro-Fac through the purchase of common
stock. Its approximately 600 members are growers (or associations of growers)
located principally in New York, Pennsylvania, Illinois, Michigan, Washington,
Oregon, Iowa, Nebraska, Florida, and Georgia. The principal office of Pro-Fac is
at 90 Linden Oaks, Rochester, New York 14625; its telephone number is (716)
383-1850.
Agrilink Foods, Inc. ("Agrilink" or the "Company"), incorporated in New York in
1961, is a producer and marketer of processed food products, including canned
and frozen fruits and vegetables, canned desserts and condiments, fruit fillings
and toppings, canned chilies and stews, salad dressings, pickles, peanut butter
and snack foods. Agrilink has three primary business units: Curtice Burns Foods
("CBF"), Nalley Fine Foods, and its Snack Foods Group. Each business unit offers
different products and is managed separately. The majority of each of the
business unit's net sales is within the United States. In addition, currently
all of the Company's operating facilities are within the United States.
On November 3, 1994, Pro-Fac acquired Agrilink, and Agrilink became a
wholly-owned subsidiary of Pro-Fac. Pro-Fac and Agrilink have a long-standing
contractual relationship pursuant to which Pro-Fac provides crops and financing
to Agrilink, Agrilink provides a market and management to Pro-Fac, and Pro-Fac
shares in the profits of Agrilink. The purchase price and fees and expenses
related to the acquisition were financed with borrowings under a credit
agreement (the "Credit Agreement") with CoBank, ACB (the "Bank"), and the
proceeds of the Company's 12.25 percent Senior Subordinated Notes due 2005 (the
"Notes"). Pro-Fac has guaranteed the obligations of the Company under the Credit
Agreement and the Notes. The Credit Agreement and the Notes restrict the ability
of Pro-Fac to amend the Pro-Fac Marketing and Facilitation Agreement. The Credit
Agreement and the Notes also restrict the amount of dividends and other payments
that may be made by the Company to Pro-Fac.
Under the Pro-Fac Marketing and Facilitation Agreement (the "Agreement"),
Agrilink pays Pro-Fac the commercial market value ("CMV") for all crops supplied
by Pro-Fac. CMV is defined as the weighted average price paid by other
commercial processors for similar crops sold under preseason contracts and in
the open market in the same or competing market area. Although CMV is intended
to be no more than the fair market value of the crops purchased by Agrilink, it
may be more or less than the price Agrilink would pay in the open market in the
absence of the Agreement.
Under the Agreement, Agrilink is also required to have on its Board of Directors
some persons who are neither members of nor affiliated with Pro-Fac
("Disinterested Directors"), the number of Disinterested Directors must at least
equal the number of Directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Agrilink under the Agreement are determined pursuant to
its annual profit plan, which requires the approval of a majority of the
Disinterested Directors of Agrilink. In addition, in any year in which the
Company has earnings on products which were processed from crops supplied by
Pro-Fac ("Pro-Fac Products"), the Company pays to Pro-Fac up to 90 percent of
such earnings, but in no case more than 50 percent of all pretax earnings
(before dividing with Pro-Fac) of the Company. In years in which the Company has
losses on Pro-Fac Products, the Company reduces the CMV it would otherwise pay
to Pro-Fac by up to 90 percent of such losses, but in no case by more than 50
percent of all pretax losses (before dividing with Pro-Fac) of the Company.
Additional patronage income is paid to Pro-Fac for services provided to
Agrilink, including the provision of a long-term, stable crop supply, favorable
payment terms for crops and the sharing of risks in losses of certain operations
of the business. For fiscal years ended 1998, 1997, and 1996, such additional
patronage income/(loss) amounted to $12.5 million, $10.3 million, and $(9.0)
million, respectively. Under the Indentures related to the Notes, Pro-Fac is
required to reinvest at least 70 percent of the additional patronage income in
Agrilink.
On July 27, 1998, the Company announced that it had reached a definitive
agreement with Dean Foods Company ("Dean") of Franklin Park, Illinois, to
acquire Dean's vegetable operations which includes the nationally known Birds
Eye brand and Dean's Freshlike and VegAll brands (the "Dean Foods Acquisition").
The Dean Foods Vegetable Company ("DFVC") reported revenues of approximately
$620 million for fiscal 1998. DFVC employs approximately 2,000 full-time
employees in 13 plants, located in California, Minnesota, New York, Texas, and
Wisconsin. The Acquisition is expected to close in September 1998 and will be
accounted for as a purchase.
<PAGE>
2
In connection with the acquisition of DFVC, the Company has received a
commitment letter from a bank to provide a new credit facility (the "New Credit
Facility"), which is expected to consist of a $200.0 million revolving credit
facility (the "Revolving Credit Facility") and a $500.0 million term loan
facility (the "Term Loan Facility"). Such commitment, however, is subject to a
number of conditions, including the execution and delivery of a New Credit
Facility agreement satisfactory to the lender.
The Term Loan Facility is expected to be comprised of a term A facility of
$150.0 million (the "Term Loan A"), which will have a maturity of five years, a
term B facility of $175.0 million (the Term Loan B"), which will have a maturity
of six years, and a term C facility of $175.0 million (the "Term Loan C"), which
will have a maturity of seven years. The Revolving Credit Facility will have a
maturity of five years.
The New Credit Facility will bear interest, at the Company's option, at the
Administrative Agent's alternate base rate or the reserve-adjusted London
Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of: (i)
in the case of alternate base rate loans, (x) 1.00 percent for the Revolving
Credit Facility and Term Loan A, (y) 1.75 percent for Term Loan B, and (z) 2.00
percent for Term Loan C; and (ii) in the case of LIBOR loans, (x) 2.25 percent
for Revolving Credit Facility and Term Loan A, (y) 2.75 percent for Term Loan B,
and (z) 3.00 percent for Term Loan C. The administrative agent's "alternate base
rate" is defined as the greater of (a) the prime commercial rate as announced by
the administrative agent, or (b) the Federal Funds rate plus 1/2 of 1 percent.
In addition, the Company will pay a commitment fee calculated at a rate of 0.50
percent per annum on the daily average unused commitment under the Revolving
Credit Facility.
Pro-Fac Securities:
Common Stock. Common stock, par value $5, is sold for cash at its par value to
all growers or associations of growers who become members of Pro-Fac, and
ownership of common stock is thus synonymous with membership in Pro-Fac. The
common stock investment required of each new member is based upon the nature,
location, and quantity of particular crops in particular locations. In
determining the level of common stock investment required for a member who
desires to market a specified quantity or acreage of a crop through Pro-Fac, the
Board of Directors takes into account the expected Commercial Market Value
("CMV") of the crop, the level of interest in marketing that crop through
Pro-Fac and other factors. Common stock may only be held by members of Pro-Fac
who are growers of crops marketed through Pro-Fac (or by associations of such
growers), and may only be transferred with the written consent of Pro-Fac. Any
proposed purchaser of outstanding common stock must be a grower willing to
assume all of the seller's obligations as a member of Pro-Fac and must be
acceptable to the Board of Directors.
Upon the purchase of common stock, a new member of Pro-Fac executes a General
Marketing Agreement, which provides for (1) delivery of crops; (2) the
availability of facilities for receiving and processing the crops; (3) the
operation of a single marketing pool for all crops delivered based upon the
establishment of the CMV, as defined, of each crop each year; and (4) the manner
of payment by Pro-Fac to its members of the purchase price for delivered crops.
Annual crop agreements supplement the General Marketing Agreement by setting
forth quality specifications, terms and conditions for the production and
delivery of the member's specific crop, and the relative value weighting to be
given to raw product by grade category. See "Business of Pro-Fac."
In many cases, the board of directors of Pro-Fac has permitted new members to
pay the purchase price for their shares of common stock in four installments.
Under this system, a cash deposit of at least 25 percent of the total price must
be paid upon joining Pro-Fac; at that time 25 percent of the shares to be
purchased are issued to the grower. The balance due may be paid in three equal
annual installments; upon receipt of each payment, 25 percent of the shares to
be purchased are issued by Pro-Fac to the grower. A member making his purchase
in installments is permitted to market through Pro-Fac the total quantities of
product covered by his General Marketing Agreement even before he has purchased
the total required number of shares of common stock. Since each Pro-Fac member
is entitled to only one membership vote regardless of the number of shares of
common stock held, the voting rights of a member are not affected by the
purchase of common stock in installments. See "Description of Pro-Fac Securities
- - Common Stock, Par Value $5 - Voting Rights." A member is entitled to receive
dividends only on shares of common stock actually issued to him.
A grower may pay the three annual installments from the proceeds of his crop
sales to Pro-Fac or from other funds, as he chooses. He may pay the full amount
due at any time prior to the end of the third crop season, except that members
are not permitted to make voluntary advance payments for common stock between
April 1 and the dividend qualifying date for common stock during any calendar
year.
Retains. Retains are issued to reflect the retention by Pro-Fac of a portion of
its proceeds, as described below. Patronage proceeds are Pro-Fac's gross
receipts derived from sources that under federal tax law qualify as patronage
income, which are primarily proceeds from the sale of crops supplied by members
of Pro-Fac, as well as transactions that facilitate or are directly related to
such marketing activities.
<PAGE>
3
Under the bylaws of Pro-Fac, net proceeds from patronage income, if any, must be
paid or allocated each year to each member on the basis of the business done by
that member with Pro-Fac during the preceding crop year. Distribution may be
made in cash or by allocating to the account of each member his interest in that
portion of the proceeds retained by Pro-Fac ("retains") for use as working
capital or for such other purposes as may be determined by the Board of
Directors. Such retains are made up of allocations for which qualified notices
have been distributed ("qualified retains") and non-qualified notices of
allocations ("non-qualified retains"). Qualified retains are freely transferable
and normally mature into Class A Cumulative Preferred Stock at liquidation
preference, $25 per share, in December of the fifth year after allocation.
Non-qualified retains may not be sold or purchased and may, in the discretion of
the Board of Directors, be redeemed after five years for cash and/or preferred
stock. Prior to fiscal 1996, qualified retains were converted into
Non-Cumulative Preferred Stock upon maturity, and Non-Cumulative Preferred Stock
was used to redeem non-qualified retains. Beginning in fiscal 1996, qualified
retains were converted into Class A Cumulative Preferred Stock upon maturity,
and Class A Cumulative Preferred Stock was used to redeem non-qualified retains.
In the future, it is the intention of the Board of Directors that retains
maturing or redeemed will be converted into or redeemed using Class A Cumulative
Preferred Stock. See "Description of Pro-Fac Securities" and "Risk Factors."
Preferred Stock. Until October 1995, all preferred stock issued by Pro-Fac was
Non-Cumulative Preferred Stock. On October 10, 1995, Pro-Fac consummated an
exchange offer in which shares of Class A Cumulative Preferred Stock
("Cumulative Preferred Stock") were exchanged for outstanding shares of
Non-Cumulative Preferred Stock (the "Exchange Offer"). The purpose of the
Exchange Offer was to provide stockholders with the opportunity to exchange, on
a share-for-share basis, shares of Non-Cumulative Preferred Stock (which are
highly illiquid) for shares of Cumulative Preferred Stock (which are traded on
the Nasdaq National Market System). Holders of shares of Cumulative Preferred
Stock will be entitled to receive, when, as and if declared by the Board, out of
assets of Pro-Fac legally available, therefore, cumulative cash dividends at a
quarterly rate equal to $0.43 per share (or an annual rate of approximately
6.88% of the liquidation preference of $25.00 per share). Although the
Cumulative Preferred Stock is traded on the Nasdaq National Market system, there
can be no assurance that an established and liquid market for the Cumulative
Preferred Stock will continue. See "Description of Pro-Fac Securities" and "Risk
Factors."
Use of Proceeds: The cash proceeds from the sale of common stock to growers and
the cash retained as a result of distributing net proceeds in the form of
retains rather than in cash will be used for general corporate purposes as
determined by the Board of Directors at the time of receipt. No separate cash
proceeds are realized from the issuance of shares of Cumulative Preferred Stock
that results from the conversion of retains.
Tax Treatment of Amounts Paid or Allocated to Members: Under the federal income
tax laws, members of Pro-Fac must include currently in their taxable income
calculation the purchase price for their crops, including all cash payments and
allocations of qualified retains. Non-qualified retains are not subject to
current taxation to the members and are taxable to the members only if and when
redeemed by Pro-Fac. See "Business of Pro-Fac."
Benefits of Membership: From the point of view of a member of Pro-Fac there are
several advantages that he receives from his membership in Pro-Fac, which
include the following:
1. The primary advantage is that the member has an established market for
a portion of his crop in advance of the crop season.
2. A member of Pro-Fac can specialize in the production of one or a few
crops, which normally tends to increase the efficiency of his
operations, yet have the opportunity to participate in the potential
benefits of crop and geographical diversity, since he shares in the
proceeds of all crops marketed through Pro-Fac in proportion to the
value of his own crops marketed through Pro-Fac.
3. Members of Pro-Fac have the satisfaction of knowing that their views
will be heard in the Cooperative because all of the directors of
Pro-Fac and all of the members of the commodity committees are also
grower-members. The members of the commodity committees and all of the
directors are also elected by the members of Pro-Fac on a regional
basis.
4. Should Pro-Fac or Agrilink need additional crops for an existing
operation of Agrilink, qualified members are given the first
opportunity to provide those crops.
5. The member obtains the benefit of the expertise of Agrilink in the
processing and marketing of food products.
<PAGE>
4
6. Over a period of years, depending on the results of operations, the
member has the opportunity to build a substantial equity investment in
Pro-Fac retains and preferred stock.
7. The investment of the member in Pro-Fac common stock and the market
for his products derived from that investment are transferable,
subject to the approval of the Pro-Fac Board of Directors, so that
should he want to reduce or terminate his production of crops, he can
liquidate his common stock investment through the sale of his shares
to an eligible grower or to Pro-Fac itself.
To obtain these advantages the member must:
1. Purchase shares of common stock of Pro-Fac based upon the type,
location, and volume of crops he agrees to market through Pro-Fac.
2. Agree to the retention by Pro-Fac of a portion of its proceeds from
patronage business above the CMV of crops marketed. For example, in
the 1997 and 1995 fiscal years, 75 percent and 80 percent,
respectively, of such proceeds, excluding non-qualified retains, was
so retained by Pro-Fac. For the first five years, such amounts are
retained without payment of interest or dividends. A member's
investment in the retains and Non-Cumulative Preferred Stock of
Pro-Fac is relatively illiquid. Recent sales of qualified retains and
preferred stock have been at prices substantially below the face
amounts thereof.
3. Agree to the delayed payment of a portion of the purchase price for
his crops. Such delay will exceed the industry average in many
instances.
4. Include in his income for tax purposes not only the cash payments
received for his crops but also the amount of qualified retains
allocated to his account in that year and any non-qualified retains
redeemed in that year.
5. Assume the risk that he may be paid less than CMV for his crops. See
"Risk Factors - Member's Share of Proceeds was Less Than CMV in Fiscal
1996" and "Business of Pro-Fac."
RISK FACTORS
Member's Share of Proceeds was Less Than CMV in Fiscal 1996: Payment for crops
is based upon the CMV of such crops, which is the weighted average of the prices
paid by other commercial processors for similar crops used for similar or
related purposes sold under preseason contracts or in the open market in the
same or similar market areas. There is no relationship between the CMV of crops
and the cost of producing such crops since CMV is determined by supply and
demand in the marketplace.
While Agrilink has agreed to pay to Pro-Fac at least the CMV of Pro-Fac crops,
the total proceeds of Pro-Fac depend in large part on the overall profitability
of Agrilink. There can be no assurance that payment by Pro-Fac to a member for
his crops from the proceeds of Pro-Fac will be equal to or greater than the CMV
of those crops.
The members of Pro-Fac were paid more than CMV for their crops in every year of
Pro-Fac operations except 1963, 1969, 1970, and 1996. The Company will assume
increased indebtedness in conjunction with the acquisition of DFVC, thus,
increasing the risk that Pro-Fac would, in one or more future years, pay members
less than the CMV of their crops. See "Increase in Leverage of Agrilink."
Increase in Leverage of Agrilink: On July 27, 1998, the Company announced that
it had reached a definitive agreement with Dean Foods Company ("Dean") of
Franklin Park, Illinois, to acquire Dean's vegetable operations which includes
the nationally known Birds Eye brand and Dean's Freshlike and VegAll brands (the
"Acquisition"). The Dean Foods Vegetable Company ("DFVC") reported revenues of
$620 million for fiscal 1998. DFVC employs approximately 2,000 full-time
employees in 13 plants, located in California, Minnesota, New York, Texas, and
Wisconsin. The Acquisition is expected to close in September 1998 and will be
accounted for as a purchase. To complete the Acquisition, the Company will incur
a significant amount of new borrowings. Management anticipates that the
Acquisition will be financed through a combination of bank and subordinated
debt. Under provision of the additional bank and subordinated debt agreements,
Pro-Fac will act as a guarantor. Pro-Fac does not have any independent
operations or any significant assets other than the capital stock of Agrilink
and is dependent upon the receipt of payments under the Marketing and
Facilitation Agreement and dividends or other distributions from Agrilink to
fund its obligations. As such, Pro-Fac will be required to maintain specified
levels with regard to EBITDA, interest coverage, fixed charges, leverage, net
worth, and will have restrictions placed on it regarding dividends and other
distributions.
<PAGE>
5
As a result of the Acquisition, Agrilink will be more leveraged, and such
leverage may increase or decrease in the future. Such leverage may increase as a
result of the future borrowings to fund capital expenditures, working capital
needs, or for other general corporate needs. The degree to which the Company is
leveraged is important to members of Pro-Fac because the amount paid by Agrilink
for crops supplied by Pro-Fac, and the amount of dividends that Agrilink may pay
to Pro-Fac, varies depending upon the profitability of Agrilink. Such payments,
in turn, affect what Pro-Fac may pay to its members for their crops and the
ability of Pro-Fac to pay dividends on, or repurchase, its common and preferred
stock.
A high degree of leverage may make the Company more vulnerable to economic
downturns, may limit its ability to withstand competitive pressures. If the
Company is unable to generate sufficient cash flow from operations to service
its debt obligations and to meet other cash requirements, it may be required to
sell assets, reduce capital expenditures, refinance all or a portion of its
debt, or obtain additional financing. There can be no assurance that any such
assets sales or refinancing would be possible or that any additional financing
would be available, if at all, on terms acceptable to the Company. Factors which
could affect the Company's access to the capital markets, or the cost of such
capital, include changes in interest rates, general economic conditions, and the
perception in the capital markets of the Company's business, results of
operations, leverage, financial condition, and business prospects. The Company's
ability to make scheduled payments of principal or interest, or to refinance its
indebtedness will depend on the Company's future operating performance, which
will be subject to economic, financial, competitive, and other factors beyond
its control. Based on the current level of operations, the Company believes that
it will be able to meet the debt service requirements on its indebtedness, meet
its working capital needs, and funds its capital expenditures and other
operating expenses out of cash flow from operations and available short-term
borrowings.
Delayed Payments for Crops: Pro-Fac members receive delayed payment of a portion
of the purchase price for their crops. The delay exceeds the industry average in
some instances. See "Business of Pro-Fac - Marketing of Members' Crops - Timing
of Payments for Crops" and "- Harvest-Time Advance."
Inclusion of Certain Payments in Taxable Income: A member of Pro-Fac must
include in his taxable income for federal income tax purposes his share of the
net proceeds of Pro-Fac realized from patronage business which are paid to him
in cash and allocated to his account as qualified retains. Non-qualified retains
are included in the member's taxable income only upon redemption. See "Business
of Pro-Fac."
Non-Transferability of Non-Qualified Retains: Non-qualified retains are
non-transferable and do not bear interest. See "Description of Pro-Fac
Securities."
Absence of Market for Non-Cumulative Preferred Stock and Qualified Retains: The
Non-Cumulative Preferred Stock and qualified retains of Pro-Fac may be
transferred without the consent of Pro-Fac. There are several broker-dealers
making a limited market in Pro-Fac Non-Cumulative Preferred Stock and qualified
retains. There is no assurance that these arrangements, or any other organized
market for Pro-Fac Non-Cumulative Preferred Stock and qualified retains, will be
reestablished. The purpose of the Exchange Offer was to provide stockholders
with the opportunity to exchange, on a share-for-share basis, shares of
Non-Cumulative Preferred Stock (which are highly illiquid) for shares of
Cumulative Preferred Stock (which are traded on the Nasdaq National Market
System. Pro-Fac permits holders to exchange Non-Cumulative Preferred Stock for
Cumulative Preferred Stock on a share-for-share basis at certain times during
the year. See "Description of Pro-Fac Securities."
Possible Changes of Treatment of Retains: The current policy of Pro-Fac with
regard to the maturing of qualified retains into preferred stock and the
redemption of non-qualified retains for preferred stock and/or cash is described
in this Prospectus under "Description of Pro-Fac Securities." This policy is,
however, subject to change, in the discretion of the Board of Directors.
Common Stockholders Receive Only One Vote Regardless of Shares Owned: Each
member of Pro-Fac has one vote, regardless of the number of shares of common
stock held. Further, if two or more members are joined in a single farming
enterprise, the participating members receive only a single vote. Accordingly,
even a member with substantial holdings of common stock will have relatively
little control over the election of directors or other matters on which members
may vote. See "Description of Pro-Fac Securities."
<PAGE>
6
Possible Discontinuance of Crop: Pro-Fac continuously reviews the ability of its
members to produce high-quality crops, and Agrilink continuously reviews its
ability to process and market profitably the crops it buys from Pro-Fac. As a
result of such reassessment, Pro-Fac may determine to cease marketing a
particular crop and terminate the marketing agreements of the members producing
that crop for sale through the Cooperative. The members affected would be
required to sell all of their common stock supporting that crop to Pro-Fac for
cash at its par value, plus any accrued dividends. Pro-Fac may also adjust the
quantity of a crop to be marketed for members, either permanently or
temporarily, in several ways described herein under "Business of Pro-Fac
Marketing of Members' Crops - Quantity of Crops Marketed." Permanent increases
or decreases in the quantity of a crop to be marketed would involve,
respectively, the purchase of additional common stock by members or other
growers, or the sale of common stock by members to Pro-Fac at par value, plus
any accrued dividends.
Agricultural Risks: Agrilink and Pro-Fac and its members are subject to all the
risks generally associated with production and marketing of agricultural
commodities. The vegetable portion of the business can be positively or
negatively affected by weather conditions nationally and the resulting impact on
crop yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices and reduced
profitability on the inventory produced from that year's crops. Excessive rain
or drought conditions can produce low crop yields and a shortage situation. This
typically results in higher selling prices and increased profitability. While
the national supply situation controls the pricing, the supply can differ
regionally because of variations in weather.
Competition in Food Processing Industry: The products of Agrilink, including
those processed from crops supplied by Pro-Fac, compete with those of national
and major regional food processors under highly competitive conditions. Many
national manufacturers have substantially greater resources than Agrilink and
Pro-Fac. In conjunction with the anticipated Dean Foods acquisition, the Company
will obtain the Birds Eye brand name. Management believes that the addition of
the DFVC branded products to the Company's portfolio will enhance its existing
business and provide for significant opportunities of growth.
Proceeds Not Committed to Specific Purposes: The securities offered by Pro-Fac
are issued on a continuing basis as part of the normal operations of Pro-Fac and
not to raise funds for any specific purpose. All determinations concerning the
use and investment of the proceeds will be made by the Board of Directors of
Pro-Fac. The members of Pro-Fac will not have the opportunity to evaluate any
use to which the proceeds may be put.
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS
<CAPTION>
Fiscal Year Ended
June 25, June 24, June 29, June 28, June 27,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
and preferred dividends 2.2 1.5 (A) 1.1 1.4
Pro forma ratio of earnings to fixed
charges and preferred dividends 1.7 1.3 (B) (B) 1.2
<FN>
(A) In the fiscal year ended June 29, 1996, the earnings were inadequate by
$37,048,000 to cover the amount of fixed charges and pretax basis preferred
dividends.
(B) In the fiscal years ended June 29, 1996 and June 28, 1997, the earnings
were inadequate by $43,748,000 and $2,028,000, respectively, to cover the
amount of fixed charges and pretax basis preferred dividends which would
have been declared and paid if all retained earnings allocated to members'
"retains" at the end of each fiscal period had been converted to preferred
stock at the beginning of the period at the maximum dividend permitted by
law.
</FN>
</TABLE>
<PAGE>
7
For purposes of computing the ratio of earnings to fixed charges and preferred
dividends, earnings consist of net proceeds before (1) equity in the
undistributed earnings of CoBank, ACB, (2) fixed charges, (3) income taxes, and
(4) dividends on common and preferred stock.
Fixed charges represent total interest expense. For purposes of this
computation, preferred dividends are adjusted to a pretax basis (the amount of
earnings before taxes necessary to meet preferred stock dividend requirements).
Dividends represent those amounts deducted for purposes of determining net
proceeds in each fiscal year.
The pro forma ratios of earnings to fixed charges and preferred dividends were
computed by further increasing combined fixed charges and such dividends,
adjusted to a pretax basis, by the amount of pretax basis preferred dividends
which would have been declared and paid if all retained earnings allocated to
members' "retains" at the end of each fiscal period had been converted to
preferred stock at the beginning of the respective periods and the maximum
dividend permitted by law of 12 percent of par value was declared and paid
thereon.
USE OF PROCEEDS
The securities offered hereunder are issued on a continuing basis as part of the
normal operations of Pro-Fac and are not offered to raise funds for any specific
purpose. As described more fully elsewhere herein, common stock is sold from
time to time to new members of Pro-Fac or to members who increase the quantity
of crops marketed through Pro-Fac. Retains are issued annually to represent net
proceeds from patronage business retained by Pro-Fac. The cash retained as a
result of distributing net proceeds in the form of retains rather than in cash
is transferred to Agrilink and is used for general corporate purposes, such as
the financing of fixed assets and the reduction of short or long-term
borrowings, as determined by the Board of Directors at the time of receipt. No
separate cash proceeds are realized from the issuance of Cumulative Preferred
Stock, which is issued only upon the maturing of outstanding retains and
replaces those retains on the books of the Cooperative.
DETERMINATION OF OFFERING PRICE
Common stock issued by Pro-Fac is sold at its $5 par value to members of Pro-Fac
or to growers who meet Pro-Fac standards for membership.
BUSINESS OF PRO-FAC
Pro-Fac's approximately 600 members are growers located principally in New York,
Pennsylvania, Illinois, Michigan, Washington, Oregon, Iowa, Nebraska, Florida,
and Georgia. A grower becomes a member of Pro-Fac through the purchase of common
stock, which obligates the grower to supply, and Pro-Fac to purchase, crops.
Crops grown by Pro-Fac members and purchased by Pro-Fac include fruits
(cherries, apples, blueberries, peaches and plums), vegetables (snap beans,
beets, cucumbers, dry beans, spinach, lima beans, peas, sweet corn, carrots,
cabbage, squash, asparagus, potatoes, turnip roots and leafy greens) and
popcorn. All of the crops supplied to Pro-Fac by its members are sold to
Agrilink.
In connection with the DFVC acquisition, it is anticipated the Pro-Fac
membership will increase to accommodate the additional crop requirements.
Membership: Membership in Pro-Fac is evidenced by the ownership of Pro-Fac
common stock. Hence the terms "member" and "common stockholder" are synonymous.
Only producers (or associations of producers) of agricultural products marketed
through Pro-Fac are eligible to become members and to own common stock of
Pro-Fac. See "Summary of Prospectus - Pro-Fac Securities - Common Stock."
Regional Representation: The business of Pro-Fac is conducted pursuant to
policies established by its Board of Directors. The territorial area in which
Pro-Fac operates has been divided into geographical regions based on natural
divisions of product and location. In addition, some regions have been further
divided into districts. The members within each region or district are
represented on the Board by at least one director. The board designates the
number of directors to be elected from each region or district, based on the
value of raw product delivered, so as to attain reasonably balanced
representation on the Board. At present, there are five regions of Pro-Fac
covering the following areas and represented by the number of directors
indicated:
Present Number
Region Area of Directors
I (Dist. 1) Western Upstate New York 2
(Dist. 2) Eastern Upstate New York 2
(Dist. 3) Pennsylvania and Delaware 1
II (Dist. 1) Michigan 3
(Dist. 2) Illinois 1
III Iowa and Nebraska 1
IV Washington and Oregon 1
V Georgia and Florida 1
<PAGE>
8
In addition to the 12 directors elected by the members of Pro-Fac within these
five membership regions, the Board of Directors of Pro-Fac is permitted to
appoint up to one-fifth of the total number of directors to represent primarily
the interest of the general public in Pro-Fac, although, at present only these
12 elected directors constitute the entire board.
Commodity Committees: A commodity committee has been established for each of the
major crops marketed through Pro-Fac. Each committee member is a member of
Pro-Fac who grows and markets through Pro-Fac the crop with which his committee
is concerned. Under current policies, where a crop is produced in different
geographical areas, commodity committees are established either for separate
geographical areas or for a combination of areas. Members of each commodity
committee are elected by the members of Pro-Fac in the region(s) for which the
committee serves.
The commodity committees have been active in advising the Board of Directors of
Pro-Fac as to numerous matters affecting Pro-Fac crops, particularly with regard
to the determination of CMV as hereinafter described and the content of the
annual crop agreements, which specify the terms under which crops will be grown,
harvested and delivered.
MARKETING OF MEMBERS' CROPS -
General Marketing Agreement: Each member of Pro-Fac enters into a marketing
agreement with Pro-Fac (the "General Marketing Agreement"), in which he appoints
Pro-Fac as his exclusive agent for processing and marketing the portion of his
crop committed under the General Marketing Agreement and under annual crop
agreements. In the General Marketing Agreement, Pro-Fac agrees to make
available, through its agreement with Agrilink, facilities for receiving and
processing the crops delivered by its members and the management personnel to
operate such facilities and to market the crops of its members as processed food
products.
Passage of Title to Crops: Upon delivery of a member's crops to Pro-Fac, Pro-Fac
takes title to such crops and has the right to transfer, process, or encumber
them as it sees fit, subject to the provisions of the General Marketing
Agreement. A member delivering crops to Pro-Fac has no control over such crops
following delivery. Prior to delivery to Pro-Fac, each member bears all risk of
loss or damage to his crops.
Quantity of Crops Marketed: Ordinarily, the quantity of a crop to be delivered
by a member of Pro-Fac in any year is the quantity previously established in the
General Marketing Agreement and the Application for Membership or Additional
Stock Subscription, this being the quantity of raw product supported by the
member's common stock ownership. For crops subscribed on a tonnage basis,
members deliver 111 percent of the stock commitment. There are several ways,
however, in which this quantity may be changed.
If Pro-Fac determines that a permanent change is required in the total quantity
of a particular crop marketed through it, a corresponding change in the common
stock of the members producing that crop will be required. If additional
quantities of the crop are required, additional common stock will be offered to
growers of the crop, with qualified current members of Pro-Fac in the area where
the crop is needed given the first opportunity to purchase the stock. If a
reduction in the quantity of a crop is required, the common stock holdings of
all Pro-Fac members delivering that crop will be proportionately reduced; see
"Risk Factors - Possible Discontinuance of Crop."
If a change in total crop requirement is determined to be only temporary,
adjustment of common stock holdings will not be required. If additional
quantities are temporarily required, Pro-Fac offers the opportunity to deliver
them to qualified current members growing the crop, on a pro rata basis. If a
temporary reduction in a crop is required, Pro-Fac may temporarily pro-rate
downward the quantity of the crop delivered by all members supplying it.
If the deliveries of a crop are temporarily pro-rated downward, the members
affected may, with the approval of the Board of Directors, be offered the
opportunity to sell their excess common stock to Pro-Fac. A member choosing to
do so would incur a permanent reduction in the amount of crop he is entitled to
deliver to Pro-Fac.
Pro-Fac crops under stock tonnage are generally subscribed for 90 percent of
Agrilink normal required raw product needs. The difference between the normal
stock tonnage and the normal required raw product need of Agrilink becomes part
of the member's delivery obligation. The tonnage will be paid for by Pro-Fac and
qualify for net proceeds distribution. No additional investment is required from
the member. This results in an increase of 11 percent to a member's agreed to
seasonal tonnage.
<PAGE>
9
Agent Growers: If a member is temporarily unable to fulfill his production
obligation to Pro-Fac, either in whole or in part, he may secure another grower
or growers to act as his agent in growing and delivering the crop to Pro-Fac. An
agent grower arrangement should be consummated prior to the planting season for
the crop concerned. An agent grower may, but need not, be a member of Pro-Fac.
All payments, including the allocation of retains, made by Pro-Fac for crops
delivered by an agent grower will be made directly to the agent grower. A member
may not utilize an agent grower to fulfill his production obligation to Pro-Fac
more frequently than one out of any two consecutive years without subjecting
himself to the mandatory transfer of his excess common stock.
Payments Received from Agrilink; CMV: Payment for crops is initially made by
Agrilink to Pro-Fac (and by Pro-Fac to its members) on the basis of CMV. CMV is
determined by a committee established jointly by the Board of Directors of
Pro-Fac and Agrilink ("Joint Board CMV Committee") consisting of two members
appointed by the president of Pro-Fac, two members appointed by the chairman of
Agrilink, and the president of Agrilink. In making that determination, the Joint
Board CMV Committee acts on the basis of data supplied primarily by Agrilink
concerning preseason contracts and open market purchases for various crops;
however, it also relies significantly upon the advice of the commodity committee
for each of the various crops marketed through Pro-Fac. Because the members of
the commodity committees are growers of the crops with which they are concerned,
and because those growers, like other growers who are members of Pro-Fac,
frequently sell crops to processors outside of Pro-Fac, members of the commodity
committees are familiar with prices paid by other commercial processors for
crops similar to those sold and marketed through Pro-Fac.
Payment of Purchase Price to Members: As a cooperative subject to the provisions
of the Internal Revenue Code of 1986, as amended, Pro-Fac may retain for working
capital a portion of the proceeds received in payment for crops while currently
deducting for tax purposes the amount of such retained earnings that is annually
allocated to its members as qualified retains. In order to retain and deduct
such amounts, Pro-Fac must give a qualified written notice of allocation of such
amount to each member; the bylaws of Pro-Fac provide that such notices may
contain such terms and conditions as the Board of Directors deems appropriate,
but the allocation must be made within 8-1/2 months following the end of the
fiscal year. Each member must also consent to take his entire allocation of
qualified retains into income for tax purposes at its stated dollar amount, and
Pro-Fac must pay in cash at least 20 percent of each member's share of such
proceeds. Retains as to which Pro-Fac issues a non-qualified written notice of
allocation are excluded from these provisions. The earnings retained by Pro-Fac
in this fashion are discussed more fully under "Description of Pro-Fac
Securities."
The bylaws of Pro-Fac, which are incorporated into the General Marketing
Agreement, require Pro-Fac annually to pay or account to its members for their
crops, on a cooperative basis, in cash and through such allocations of retains
as the Board of Directors may determine. Over the past four out of five years
Pro-Fac has paid to its members the full CMV of all of their products marketed
through Pro-Fac. The patronage proceeds of Pro-Fac above CMV in those years
have, after payment of dividends on capital stock, partly been paid in cash to
members and partly retained by Pro-Fac and credited to an account allocated to
each member by Pro-Fac. In fiscal 1996, members' cash payments for CMV were
reduced by 10 percent. The percentages of CMV paid in cash or allocated to
members as retains over the last five fiscal years are as follows:
<TABLE>
Fiscal Year Ended June
1994 1995 1996 1997 1998
------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
Paid in cash 105.3% 102.6% 90.0% 101.7 102.6%
Allocated as qualified retains 21.0 10.6 0.0 5.2 7.9
Allocated as non-qualified retains 2.9 0.5 0.0 0.0 0.0
----- ----- ---- ----- -----
Total 129.2% 113.7% 90.0% 106.9% 110.5%
===== ===== ==== ===== =====
</TABLE>
Timing of Payments for Crops: Agrilink is obligated to pay Pro-Fac the purchase
price for crops sold under the Marketing Agreement at such time or times as may
be necessary to permit Pro-Fac to make required payments to its members. The
actual CMV of a crop cannot ordinarily be determined until well after the
harvest, so initial payments are based upon estimated CMV, which is the final
CMV established for the crop in the prior year, unless the Board of Directors
determines that average industry prices have changed significantly since that
time.
As soon as payments for particular crops are received from Agrilink, Pro-Fac
pays the funds received over to the members who delivered those crops. Thus,
with minor variations, the purchase price is then paid by Pro-Fac to the members
in accordance with a long-established schedule, as follows: 50 percent of
estimated CMV is paid not later than 30 days after completion of delivery of a
particular crop, and another 25 percent of estimated or established CMV is paid
not later than 120 days after the average date of final delivery for each crop.
The balance of CMV is paid not later than July 15 of the following calendar
<PAGE>
10
year. Any payments in addition to CMV are made as soon as possible, but in any
event within 8-1/2 months following the end of the fiscal year.
For example, a member of Pro-Fac who delivered crops with a CMV of $10,000 to
Pro-Fac for marketing on August 1, 1997 was paid or allocated a total of $11,050
for those crops. Of this amount, he was paid $10,000 (CMV) in cash in three
installments based on the following schedule of payments from Agrilink: $5,000
by August 30, 1996, $2,500 by November 30, 1996 (assuming this member's date of
final delivery coincides with the average date of final delivery for the same
crop), and $2,500 by July 15, 1998. In addition, as soon as the necessary
computations could be made, but before March 15, 1999 (8-1/2 months after fiscal
year end) and final payment was received from Agrilink, he was paid an
additional $260 (25 percent of the $1,050 earned over CMV, excluding
non-qualified retains, if any) in cash, while $790 (the remaining 75 percent of
the earnings over CMV, excluding non-qualified retains, of which there were none
for fiscal 1998) was retained by Pro-Fac and allocated to his account as
qualified retains. See "Description of Pro-Fac Securities."
Harvest Time Advance: Recognizing the costs involved in harvesting and
delivering a crop, Pro-Fac has adopted a policy of offering harvest time cash
advances to members. The terms and conditions governing such advances are
specified in the annual crop agreements. Payment of the harvest time advance is
usually made approximately one week after delivery of a crop, and the total
amount of the advance may not exceed 50 percent of estimated CMV. The harvest
time advance is repaid by deducting the amount of the advance from the first
payment due the member for the crop.
Single Pool: Under the General Marketing Agreement, Pro-Fac is required to
account for its earnings under what is generally referred to as the single pool
concept, in part because that portion of the purchase price for crops received
from Agrilink which is in excess of CMV is not allocated to individual Pro-Fac
crops, but rather is a single payment based on the profitability of a variety of
products. Under the single pool system, a determination is made as to the
earnings of all crops in the aggregate. In the above example, the total purchase
price for crops paid or allocated to the hypothetical member was 10.5 percent
over the CMV of the crops which he delivered to Pro-Fac. The payment to him of
$10,000 in cash was based upon the CMV of the particular crops he delivered, but
the 10.5 percent earned above that was based upon the aggregate earnings of all
Pro-Fac crops delivered in fiscal 1998 (1997 Production Year), computed in a
single pool. The prices paid to members of Pro-Fac for their crops are therefore
related both to the CMV of those crops and to the aggregate profitability of all
Pro-Fac crops determined under the single pool concept.
Tax Matters: As a cooperative, Pro-Fac is taxed under Subchapter T of the
Internal Revenue Code of 1986, as amended (the "Code"), which imposes regular
corporate income tax rates on cooperatives but at the same time allows
cooperatives to deduct from taxable income for federal income tax purposes
certain deductions which are not available to other business corporations. In
particular, under Subchapter T a cooperative may deduct from its taxable income
all amounts which are paid to its members and other patrons as patronage
dividends (either in cash or through the allocation of amounts retained by the
cooperative and represented by qualified written notices of allocation) with
respect to patronage occurring during the taxable year.
In general, the payments from earnings of a cooperative to its members in the
form of cash and qualified retains constitute patronage dividends within the
meaning of Subchapter T. Members and other patrons of a cooperative must agree
to include in their taxable income in the year received all amounts of patronage
dividends paid in cash or allocated to their accounts as qualified retains.
Patronage income allocated by a cooperative to its members in the form of
non-qualified retains is taxable at the cooperative level when such retains are
issued. In the year in which non-qualified retains are redeemed by a
cooperative, the cooperative receives a tax deduction in the amount of the
retains which are redeemed. Members and other patrons of the cooperative must
agree to include in their taxable income in the year of redemption any
non-qualified retains redeemed by the cooperative. Non-patronage-sourced income
of a cooperative is subject to federal income tax at the cooperative level.
Under the current agreements in effect between Agrilink and Pro-Fac, payments
are made by Agrilink for the crops of Pro-Fac members. Such payments, in part,
are based upon the earnings of Agrilink derived from products processed from the
crops supplied by Pro-Fac. These payments are classified and reported by Pro-Fac
for federal income tax purposes as patronage-sourced income. Because there are
few guidelines in this area of law, such classification and reporting has in the
past led to audit disputes with the Internal Revenue Service (the "IRS"). The
IRS clarified its position in a technical advice memorandum to Pro-Fac on
September 23, 1991. While changes have occurred in the relationship of Pro-Fac
with Agrilink since the issuance of the technical advice memorandum, the
contractual relationship between the two companies, requiring the payments based
upon the earnings of Agrilink, remain substantively the same as when the
technical advice memorandum was issued. As such, Pro-Fac has continued to treat
payments based upon the earnings of Agrilink as patronage-sourced income. In
January 1995, the Boards of Directors of Agrilink and Pro-Fac approved
appropriate amendments to the Bylaws of Agrilink to allow Agrilink to qualify as
a cooperative under Subchapter T of the Code. In August 1995, Agrilink and
Pro-Fac received a favorable ruling from the IRS approving the change in tax
treatment effective for fiscal 1996. This ruling also confirmed that the change
<PAGE>
11
in Agrilink's tax status would have no effect on Pro-Fac's ongoing treatment as
a cooperative under Subchapter T of the Code. Based on the foregoing, Harris
Beach & Wilcox, LLP is of the opinion that payments to members of Pro-Fac based
upon earnings of Agrilink continue to constitute patronage-sourced income
pursuant to Subchapter T of the Code. In the event, however, the IRS changes the
classification and reporting of the patronage-sourced income by Pro-Fac,
additional income taxes and interest could be assessed as a result of the
reclassification of income reported as patronage-sourced income to
non-patronage-sourced income.
From time to time various proposals have been made and bills introduced in
Congress which would have the effect of modifying or eliminating the present
provisions of the Code pursuant to which cooperatives are taxed and could
subject cooperatives to greater federal income tax liability. It is not possible
to predict whether any such proposal may be adopted, or if adopted what effect
it might have on the federal income tax liability of Pro-Fac or its members.
In addition, from time to time the IRS issues revenue rulings, revenue
procedures, and other official statements, which may be either prospective or
retrospective in application, by which it seeks to interpret and administer the
provisions of the Code applicable to cooperatives. It is also impossible to
predict the effect any administrative interpretations which may be adopted in
the future would have on the federal tax liability of Pro-Fac or its members.
DESCRIPTION OF PRO-FAC SECURITIES
COMMON STOCK, PAR VALUE $5 -
Dividend Rights: After all required dividends have been declared and paid to the
holders of preferred stock, dividends may be declared and paid to the holders of
common stock. Under present law, dividends on common stock may not exceed 12
percent of par value per annum. Members who purchase common stock in
installments are entitled to receive dividends only on those shares of common
stock which have been issued to them.
Voting Rights: The holders of common stock are members of Pro-Fac. Each member
has one vote, regardless of the number of shares held. The one-vote-per-member
rule is subject to certain limitations where, for estate planning, tax planning
or other reasons, more than one member is part of the same farm operation. The
restated certificate of incorporation of Pro-Fac provides that, when two or more
holders of common stock join in an agricultural venture, the Board of Directors
in its discretion shall determine whether the venture is a single enterprise for
which the participating holders shall have a single vote or a multiple
enterprise entitling the holders to more than one vote.
Liquidation Rights: Upon dissolution or other termination of Pro-Fac or its
business, after the payment of all debts, all outstanding retains (see
"Retains," below) are to be retired in full, on a pro-rata basis without
priority, before any liquidating dividends are declared on or with respect to
capital stock.
After payment to holders of all outstanding retains, holders of preferred stock
are entitled to receive, out of the funds then remaining, the full liquidation
preference of their stock, together with the amount of such dividends as may
have been declared but remain unpaid. After payment to the holders of preferred
stock, holders of common stock are entitled to receive the par value thereof,
together with the amount of such dividends as may have been declared but remain
unpaid.
To summarize, the order of priority upon distribution of assets in dissolution
is as follows:
1. First to creditors;
2. Then to redeem outstanding retains at full face value.
3. Then to redeem preferred stock at liquidation value;
4. Then to redeem common stock at par;
5. With the remainder distributed proportionately to the members to whom
retains have been allocated during the preceding five fiscal years.
Preemptive Rights: Holders of common stock have no preemptive rights.
Conversion Rights: Common stock is not convertible into any other security of
Pro-Fac.
Redemption Provisions: If a member ceases to be a producer of agricultural
products marketed through Pro-Fac, he must dispose of his common stock. If the
member follows the proper termination procedure and gives the required notice,
Pro-Fac will ordinarily purchase his stock at par value. The same procedure will
ordinarily apply when a member is expelled from the Cooperative or reduces his
production of a particular crop, in which cases all or part of his common stock
must be disposed of. Should Pro-Fac discontinue a crop, producers of that crop
will be required to dispose of their related common stock investments. Upon
notice from the Cooperative, members must sell such stock to Pro-Fac for cash
equal to its par value.
<PAGE>
12
Liability to Further Assessment: Shares of Pro-Fac common stock are subject to
no further call or assessment. Under the New York Cooperative Corporations Law,
however, each member of a cooperative corporation, as well as each director, may
be personally liable for certain amounts due to employees for services rendered
to the Cooperative.
Transfer Agent: Pro-Fac functions as its own transfer agent for common stock.
Transferability: Pro-Fac common stock is issued only to growers of agricultural
products marketed through Pro-Fac (or to associations of such growers) and may
be transferred only to another grower who meets Pro-Fac standards for
membership. A member who wishes to sell his common stock must notify Pro-Fac,
which then advises the member of the price another qualified grower acceptable
to Pro-Fac is willing to pay for the stock. Such prices vary widely by commodity
and the region in which the crop associated with the common stock is to be
grown. Such sales are often at a price exceeding the $5 par value at which the
stock was originally issued. Historically, there has usually been a demand for
common stock offered for sale by members. However, should there be no qualified
buyer for the common stock offered for sale, then Pro-Fac is obligated to
repurchase the common stock at its $5 par value.
PREFERRED STOCK -
On January 28, 1995, the members of Pro-Fac approved an amendment to Pro-Fac's
Certificate of Incorporation to authorize the issuance of an additional 50
million shares of preferred stock, divided into five classes (Classes A through
E) of 10 million shares each. As a result of the amendment, the Board continues
to be authorized to issue up to 5 million shares of Non-Cumulative Preferred
Stock and is authorized to issue up to 50 million shares of new preferred stock
at such times, for such purposes, on such terms and for such consideration as
the Board may determine, without further action of the members.
The Board is authorized to provide for the issuance, from time to time, of any
such new preferred stock in one or more designated series, and to fix the terms
of each such designated series of shares. In establishing the terms of the
series of new preferred stock, the Board is authorized to set, among other
things, the number of shares, the dividend rate and preferences, the form or
method of payment of dividends, the cumulative or non-cumulative nature of
dividends, redemption provisions (if any), including any mandatory scheduled
redemptions, the right (if any) to convert or exchange such preferred shares for
other securities, voting rights (if any), in addition to any required by
applicable law, and the amounts payable, and preferences, in the event of the
voluntary or involuntary liquidation of Pro-Fac. Each series of new preferred
stock will, in respect of dividends and liquidation, rank senior to Pro-Fac's
common stock, par value $5 per share (the "Common Stock"), and on a parity with
or junior to the Non-Cumulative Preferred Stock, as determined by the Board at
the time of issuance of such series. Within any class of the new preferred
stock, each series will rank on a parity with each other series in that class as
to dividends and liquidation.
In June 1995, the Board approved the creation of a new series of preferred
stock, to be designated Class B, Series 1 10% Cumulative Preferred Stock
("Series 1 Preferred Stock"), for issuance to employees of the Company pursuant
to an employee stock purchase plan. Pursuant to the plan, shares of Series 1
Preferred Stock are being offered to employees of the Company for a purchase
price of $10.00 per share. Holders of Series 1 Preferred Stock are entitled to
receive, when, as and if declared by the Board, cumulative cash dividends at an
annual rate of $1.00 per share. Pro-Fac plans to offer to repurchase at least 5
percent of the outstanding shares of Class B Stock annually.
In August 1995, in connection with the Exchange Offer, the Board approved the
creation of the Cumulative Preferred Stock as an additional new series of
preferred stock. See "Summary of Prospectus - Pro-Fac Securities - Preferred
Stock."
Ranking: The Cumulative Preferred Stock ranks as to dividends and upon
liquidation, dissolution and winding up on a parity with the Non-Cumulative
Preferred Stock, the Series 1 Preferred Stock, and any other series of Class A
Preferred Stock or Class B Preferred Stock ("Class A or B Series Preferred
Stock") of Pro-Fac, and ranks as to dividends or upon liquidation, dissolution
or winding up, or both, on a parity with any other class or series of capital
stock that expressly provides that it ranks on a parity with the Cumulative
Preferred Stock with respect to dividends or upon liquidation, dissolution and
winding up, as the case may be (collectively, "Parity Dividend Securities" or
"Parity Liquidation Securities"). The Cumulative Preferred Stock ranks senior
with respect to dividends and upon liquidation, dissolution and winding up to
the Common Stock and any other capital stock (other than the Non-Cumulative
Preferred Stock, Series 1 Preferred Stock and Class A or B Series Preferred
Stock) that does not, by its terms, expressly provide that it is senior to or on
a parity with the Cumulative Preferred Stock with respect to dividends or upon
liquidation, dissolution and winding up, as the case may be (collectively,
"Junior Dividend Securities" or "Junior Liquidation Securities").
<PAGE>
13
Dividends: Holders of shares of Cumulative Preferred Stock are entitled to
receive, when, as and if declared by the Board, out of assets of Pro-Fac legally
available therefor, cumulative cash dividends at a quarterly rate equal to $0.43
per share (or an annual rate of approximately 6.88% of the liquidation
preference of $25.00 per share). Dividends on the Cumulative Preferred Stock are
payable quarterly in arrears on each April 30, July 31, October 31, and January
31 of each year. Each such dividend is payable to holders of record as they
appear on the stock records of Pro-Fac at the close of business on each April
15, July 15, October 15, and January 15 preceding such dividend payment date, or
such other record dates as selected by the Board, which are not more than 50
days prior to such payment date. Dividends are cumulative from each dividend
payment date, whether or not in any dividend period or periods there are assets
of Pro-Fac legally available for the payment of such dividends.
Accumulations of dividends on shares of Cumulative Preferred Stock do not bear
interest. Dividends payable on the Cumulative Preferred Stock for any period
greater or less than a full dividend period are computed on the basis of 360-day
year consisting of twelve 30-day months.
Dividends on the Non-Cumulative Preferred Stock are not in a fixed amount, but
instead are at such rate (not less than 6% per annum) as the Board of Directors
may determine (as and when declared by the Board of Directors out of legally
available funds). Although the Board of Directors has in the past declared
dividends based on Pro-Fac's cost of funds, the dividend for fiscal 1998 was at
an annual rate of 6 percent, and Pro-Fac expects that future dividends on the
Non-Cumulative Preferred Stock will not exceed the minimum rate of 6 percent.
Dividends on the Non-Cumulative Preferred Stock are not cumulative.
As described under "Ranking" above, the Cumulative Preferred Stock, the
Non-Cumulative Preferred Stock and the Series 1 Preferred Stock, Class A, are
all Parity Dividend Securities. To declare and pay full dividends for a period
with respect to any of the Parity Dividend Securities, Pro-Fac must declare and
pay full dividends for the applicable period on all Parity Dividend Securities.
To declare and pay less than full dividends for a period with respect to any of
the Parity Dividend Securities, Pro-Fac must declare and pay pro rata dividends
on all Parity Dividend Securities. In calculating the pro rata share of
dividends to be paid with respect to each class of preferred stock, unpaid
dividends for prior periods are considered only with respect to classes of
preferred stock with cumulative dividends.
Pro-Fac may not declare, pay or set apart for payment any dividend (other than
certain stock dividends) on any of the Junior Dividend Securities or make any
distribution in respect thereof unless full cumulative dividends on the
Cumulative Preferred Stock, the Series 1 Preferred Stock, and Class A and B
Series Preferred Stock have been or are contemporaneously declared and the
corresponding portion of the current annual dividend on the Non-Cumulative
Preferred Stock is declared as described in the preceding paragraph.
Pro-Fac is also subject to certain limitations on payment of dividends under the
terms of its financing agreements.
Preemptive Rights: The holders of the Cumulative Preferred Stock will not have
any preemptive rights.
Redemption: Pro-Fac has the right, at any time and from time to time, to redeem
the Cumulative Preferred Stock, in whole or in part, at the redemption price of
$25.00 per share, plus, in each case, all dividends accrued and unpaid on the
Cumulative Preferred Stock up to the date fixed for redemption, upon giving
notice at least 30 but not more than 60 days before the date fixed for
redemption. If fewer than all of the outstanding shares of Cumulative Preferred
Stock are to be redeemed, the shares to be so redeemed will be selected pro rata
or by lot, except that Pro-Fac reserves the right to first redeem all of the
shares held by any holder of a number not to exceed 100.
From and after the redemption date (except to the extent Pro-Fac defaults in the
payment of the redemption price), all dividends on the shares of Cumulative
Preferred Stock designated for redemption will cease to accrue, and all rights
of the holders thereof as stockholders of Pro-Fac, except the right to receive
the redemption price thereof, will cease and terminate.
The Cumulative Preferred Stock is not subject to any sinking fund or other
binding obligation of Pro-Fac to redeem or retire the Cumulative Preferred
Stock. Unless redeemed by Pro-Fac, the Cumulative Preferred Stock will have
perpetual maturity.
During a limited period between 1984 and 1993, Pro-Fac repurchased small
portions of the Non-Cumulative Preferred Stock at its par value. Those
repurchases were at the sole discretion of Pro-Fac. Pro-Fac has not offered to
repurchase any Non-Cumulative Preferred Stock since its fiscal year ended 1993
and has no intention to do so in the near future. Pro-Fac also is restricted in
its ability to redeem shares of its capital stock under the various financing
obligations entered into to finance the Acquisition.
<PAGE>
14
Restriction on Certain Stock Acquisitions: Pro-Fac may not purchase, redeem or
otherwise acquire for consideration (other than in a repurchase of Common Stock
of a departing member pursuant to Pro-Fac's Bylaws or in certain
recapitalizations, exchanges or refinancings) any Cumulative Preferred Stock,
Parity Dividend Securities (including the Non-Cumulative Preferred Stock, the
Series 1 Preferred Stock, and Class A and B Series Preferred Stock), Parity
Liquidation Securities, Junior Dividend Securities or Junior Liquidation
Securities unless full cumulative dividends on the Cumulative Preferred Stock,
the Series 1 Preferred Stock, and the Class A and B Series Preferred Stock have
been or are contemporaneously declared and the corresponding portion of the
current annual dividend on the Non-Cumulative Preferred Stock is declared as
described above.
Liquidation: After payment to holders of all outstanding retains, the holders of
the Cumulative Preferred Stock will be entitled to receive, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of Pro-Fac,
$25.00 per share plus an amount equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to such
holders. Until the holders of the Cumulative Preferred Stock have been paid such
liquidation preference in full, no payment or other distribution will be made on
any Junior Liquidation Securities upon the liquidation, dissolution or winding
up of Pro-Fac. If amounts available after the payment to holders of all
outstanding retains are insufficient to pay, in full, the liquidation value of
the Cumulative Preferred Stock, the liquidation value of the Series 1 Preferred
Stock, the liquidation value of the Non-Cumulative Preferred Stock and the
liquidation value (including accumulated dividends) of any other shares of
Parity Liquidation Securities issued and outstanding, payments to holders of the
Cumulative Preferred Stock, the Series 1 Preferred Stock, the Class A and B
Series Preferred Stock, the Non-Cumulative Preferred Stock and such Parity
Liquidation Securities will be made pro-rata. Neither a consolidation or merger
of Pro-Fac nor a sale, lease or transfer of all or substantially all of
Pro-Fac's assets will be considered a liquidation, dissolution or winding up,
voluntary or involuntary, of Pro-Fac.
Voting: Except as required by law, holders of Cumulative Preferred Stock do not
have any voting rights with respect to their shares of Cumulative Preferred
Stock.
Transferability; Trading Market: Shares of Cumulative Preferred Stock and
Non-Cumulative Preferred Stock are freely transferable. The Cumulative Preferred
Stock is traded on the Nasdaq National Market System. The trading symbol is
PFACP. There is no active trading market for the Non-Cumulative Preferred Stock.
Pro-Fac maintains an ongoing exchange program to allow the exchange of
Non-Cumulative Preferred Stock for Cumulative Preferred Stock on a
share-for-share basis. A "blackout" period, however, exists between the dividend
qualifying date for the Non-Cumulative Preferred Stock and October 16 each year.
This prevents a holder from collecting the annual dividend on the Non-Cumulative
Preferred Stock and immediately becoming eligible to collect the quarterly
dividend on the Cumulative Preferred Stock.
According to Nasdaq's published guidelines, the Cumulative Preferred Stock would
not meet the criteria for continued inclusion in the Nasdaq National Market
System if, among other things, the number of round lot shareholders is less than
400, the number of publicly held shares of Cumulative Preferred Stock (excluding
Cumulative Preferred Stock held by officers or directors or their immediate
family and excluding concentrated holdings of 10 percent or more) was less than
750,000, the aggregate market value of the publicly held Cumulative Preferred
Stock was less than $5 million or there were fewer than two market makers for
the Cumulative Preferred Stock. If these standards were not met, quotations
might continue to be published in the over-the-counter "additional list" or one
of the "local lists." If the shares of Cumulative Preferred Stock are no longer
eligible for Nasdaq quotation, quotations might still be available from other
sources.
Because it is included in the Nasdaq National Market System, shares of the
Cumulative Preferred Stock constitute "margin securities" under the regulations
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to extend
credit on the collateral of the Cumulative Preferred Stock. If no longer
included or reported in market quotations, the Cumulative Preferred Stock would
no longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for loans made by brokers.
Transfer Agent: The transfer agent, dividend agent and redemption agent for the
shares of Cumulative Preferred Stock is Harris Trust Company.
RETAINS -
Annual Allocation: Retains, if any, must be allocated to the accounts of members
within 8-1/2 months of the close of the fiscal year. The fiscal year of Pro-Fac
ends on the last Saturday of June; it has been and continues to be the policy of
Pro-Fac to make the allocation of the retains on or about September 15 of each
year. Each member is typically advised of the allocation of qualified and
non-qualified retains to his account by means of an investment summary which is
mailed to him each year about September 15. There was no allocation of retains
for fiscal 1996.
<PAGE>
15
Qualified Retains Mature into Preferred Stock: Qualified retains bear no
interest, but five years after issuance they generally mature into preferred
stock at the liquidity preference of $25 per share at the discretion of the
Board of Directors. One share of preferred stock for each $25 of qualified
retains is ordinarily issued to holders of qualified retains on or about
December 31 following the completion of the fifth year after allocation of the
qualified retains. Qualified retains are now created in multiples of $25 to
avoid the necessity of paying fractional amounts in cash. Retains issued prior
to fiscal 1996 will convert into Class a Cumulative Preferred Stock unless the
holder specifically requests Non-Cumulative Preferred Stock. In the future, it
is the intention of the Board of Directors that retains maturing or redeemed
will be converted into or redeemed using Class A Cumulative Preferred Stock.
Redemption of Non-Qualified Retains: It is the present intention of the Board of
Directors that non-qualified retains will be redeemed, through partial payment
in cash and the issuance of Cumulative Preferred Stock, approximately five years
after their issuance.
Methods of Allocation of Retains: The bylaws of Pro-Fac provide that the written
notice of allocation of retains may contain such terms and conditions as the
Board of Directors may deem appropriate. Pro-Fac does not issue actual
certificates to represent retains, but rather issues periodic investment
summaries showing the allocation of qualified and non-qualified retains to each
member.
Adjustment of Amount of Non-Qualified Retains: It is possible that the
allocation of proceeds made immediately following the close of a fiscal year may
not be final and may require modification because of some event which could
occur after the close of the fiscal year. Should such an event require a
reduction in the proceeds paid or allocated to members in a previous year, the
Board of Directors may in its discretion reduce the amount of the non-qualified
retains allocated to the accounts of those members for the year in question.
Transferability of Retains; Absence of Market: Non-qualified retains are not
transferable, except to the heirs or personal representative of a member in the
event of the member's death. Qualified retains are freely transferable. Although
there are several broker-dealers making a market in Pro-Fac qualified retains,
there can be no assurance that any such market will be reestablished.
Historically, sales of qualified retains have been at prices substantially less
than the face amount. If a market for Pro-Fac qualified retains is
reestablished, the increased leverage of Pro-Fac as a result of the Acquisition,
and the limits on Pro-Fac's ability to repurchase preferred stock resulting from
the anticipated New Credit Agreement and the New Notes Indenture, are likely to
decrease the prices at which Pro-Fac qualified retains are traded.
Liquidation Rights: All retains are junior and subordinate to all debts of
Pro-Fac. The liquidation rights of the holders of retains are described under
"Description of Pro-Fac Securities - Common Stock, Par Value $5 - Liquidation
Rights" above.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
TO MEMBERS AND INVESTORS
Pro-Fac guarantees the outstanding debt obligations of the Company. These
arrangements place aggregate dollar limits on the amount Pro-Fac may pay as
dividends, stock repurchases or similar distributions to shareholders each
fiscal year. Pro-Fac guarantees also include financial covenants that may limit
Pro-Fac's ability to pay dividends on its common and preferred stock. Further,
because Agrilink and its lenders are the principal sources of cash used by
Pro-Fac to pay dividends, the restrictions on payments from Agrilink to (as
described in the Pro-Fac Annual Report on Form 10-K) may also limit Pro-Fac's
ability to pay dividends on its common and preferred stock. See also "Risk
Factors - Increase in Leverage of Agrilink."
CERTIFICATES FOR SECURITIES
Except with respect to its Class A Cumulative Preferred Stock, Pro-Fac
ordinarily does not issue certificates representing shares of either its common
or preferred stock or its members' interests in retains, except upon specific
request. In lieu of certificates, Pro-Fac distributes to its members and its
non-member security holders periodic computerized statements referred to as
"investment summaries." The investment summaries detail the investment of each
member or security holder in the securities of Pro-Fac (common stock,
Non-Cumulative Preferred Stock and retains) by type of security, number of
shares (or dollar amount) and date of issue. In the case of qualified retains,
the summaries also indicate the date upon which they are anticipated to be
replaced by corresponding par value dollar amounts of preferred stock.
Additionally, the investment summaries detail each member's crop commitments to
the Cooperative.
<PAGE>
16
PLAN OF DISTRIBUTION
When the Board of Directors determines to offer Common Stock to support delivery
rights for an existing or new crop, the offering is implemented by the
Agricultural Services Department of the Cooperative. The Agricultural Services
Department delivers prospectuses and notices of Common Stock availability to,
and has meetings with, existing Cooperative members capable of providing the
crop or, if new members are required, qualified growers of the crop near the
Agrilink production facility to which the crop will be delivered. The
ministerial acts associated with the distribution of retains, the conversion of
qualified retains to preferred stock and the redemption of nonqualified retains
for cash and/or preferred stock are also handled by the Agricultural Services
Department, with the assistance of the Cooperative's transfer agent, where
required.
EXPERTS
The financial statements, incorporated by reference to the Annual Report on Form
10-K for the year ended June 27, 1998, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
<PAGE>
17
PART II
Information Not Required in Prospectus
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the securities
being registered are as follows:
<TABLE>
<S> <C>
Filing fee for Registration Statement $ 2,121.00
Legal fees and expenses 10,000.00*
Accounting fees and expenses 3,500.00*
Blue sky fees and expenses 10,000.00*
Taxes None
Transfer agents' fees None
Printing and engraving 3,000.00
Miscellaneous 1,000.00
----------
Total $29,621.00
==========
<FN>
*Estimated
</FN>
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 721 through 727 of the New York Business Corporation Law permit the
registrant to indemnify its officers and directors against liabilities under
certain circumstances. Section 726 of the New York Business Corporation Law
allows the registrant to purchase and maintain insurance to indemnify (i) the
registrant for any obligation which it incurs as a result of the indemnification
of directors and officers, (ii) directors and officers in instances in which
they may be indemnified by the registrant, and (iii) directors and officers in
instances in which they may not otherwise be indemnified by the registrant
provided the contract of insurance covering such directors and officers
provides, in a manner acceptable to the superintendent of insurance of the State
of New York, for a retention amount and for co-insurance. Notwithstanding the
foregoing, no such insurance may provide for any payment, other than cost of
defense, to or on behalf of any director or officer (i) if a judgment or other
final adjudication adverse to the insured director or officer establishes that
his acts of active and deliberate dishonesty were material to the cause of
action so adjudicated, or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled or (ii) in relation to
any risk the insurance of which is prohibited under the insurance law of the
State of New York. As permitted by law, the registrant has obtained a policy of
directors and officers liability and corporation reimbursement insurance, which
is due for renewal on August 15, 1999.
<TABLE>
ITEM 16. EXHIBITS
(a) Exhibits:
<CAPTION>
Exhibit
Number Description
<S> <C>
3.3(7) Certificate of Incorporation of Pro-Fac.
3.4(3) Bylaws of Pro-Fac.
3.5(6) Certificate of Amendment of the Certificate of Incorporation of Pro-Fac.
5.0 Opinion and Consent of Harris Beach & Wilcox, LLP.
8.0 Opinion of Harris Beach & Wilcox, LLP regarding tax matters.
10.1(2) Indenture, dated as of November 3, 1994 (the "Indenture"), among PFAC, Pro-Fac and IBJ Schroder Bank & Trust
Company ("IBJ"), as Trustee, as amended by First Supplemental Indenture, dated as of November 3, 1994, each with
respect to Agrilink's 12.25 percent Senior Subordinated Notes due 2005 (the "Notes").
10.2(2) Term Loan, Term Loan Facility and Seasonal Loan Agreement, dated as of November 3, 1994, among Springfield Bank
for Cooperatives (the "Bank"), Agrilink and PFAC.
10.3(2) Parent Guaranty, dated as of November 3, 1994, by Pro-Fac in favor of the Bank.
10.4(2) Parent Security Agreement, dated as of November 3, 1994 between Pro-Fac and the Bank.
</TABLE>
<PAGE>
18
<TABLE>
(a) EXHIBITS (Continued):
Exhibit
Number Description
<S> <C>
10.5(2) Mortgage, Open End Mortgage, Deed of Trust, Trust Deed, Deed to Secure Debt, Purchase Money Mortgage, Assignment,
Security Agreement and Financing Statement dated November 3, 1994 among PFAC, Agrilink and the Bank.
10.6(2) Marketing and Facilitation Agreement, dated as of November 3, 1994, between Pro-Fac and Agrilink.
10.7(2) Management Incentive Plan, as amended.
10.8(2) Supplemental Executive Retirement Plan, as amended.
10.10(2) Master Salaried Retirement Plan, as amended.
10.11(2) Non-Qualified Profit Sharing Plan, as amended.
10.12(2) Excess Benefit Retirement Plan.
10.13(5) Salary Continuation Agreement - Dennis M. Mullen.
10.14(1) Modification A of Term Loan, Term Loan Facility, and Seasonal Loan Agreement, dated as of January 26, 1995,
between Agrilink and the Bank.
10.15(1) Second Amendment to Non-Qualified Profit Sharing Plan.
10.16(3) Modifications B - D of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Agrilink and the Bank.
10.17(4) Modifications E - F of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Agrilink and the Bank.
10.18(4) Equity Value Plan Adopted on June 24, 1996.
10.19(4) Seasonal Loan Agreement Between Pro-Fac and the Bank Dated June 28, 1996.
10.20(5) Modifications G - K of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Agrilink and Bank.
10.21(5) OnSite Services Agreement with Systems & Computer Technology.
10.22(5) Raw Product Supply Agreement with Seneca Foods Corporation.
10.23(5) Reciprocal Co-Pack Agreement with Seneca Foods Corporation.
10.24(6) Modification L of Term Loan, Term Loan Facility, and Seasonal Loan Agreement between Agrilink and the Bank.
10.25(6) Second Supplemental Indenture dated November 10, 1997.
10.26(6) Amendment to Marketing and Facilitation Agreement.
12 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends
23.1(6) Accountants' Consent Regarding the Agrilink Foods Employee Stock Purchase Plan
23.2 Consent of Independent Accountants
23.3 Consent of Independent Accountants
<FN>
(1) Incorporated by reference from Registration Statement No. 33-60273.
(2) Incorporated by reference from Registration Statement No. 33-56517, as
amended.
(3) Incorporated by reference from the Registrant's 1995 Annual Report on Form
10-K.
(4) Incorporated by reference from the Registrant's 1996 Annual Report on Form
10-K.
(5) Incorporated by reference from the Registrant's 1997 Annual Report on Form
10-K.
(6) Incorporated by reference from the Registrant's 1998 Annual Report on Form
10-K.
(7) Incorporated by reference from the Registrant's 1998 First Quarter Report
on Form 10-Q.
</FN>
</TABLE>
<PAGE>
19
ITEM 17. UNDERTAKINGS
1. The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective amendment
hereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registrations statement or any material change in
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly registration statement
on Form S-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rochester, State of New York, on the 15th day
September, 1998.
PRO-FAC COOPERATIVE, INC.
BY: /s/ Earl L. Powers
Earl L. Powers
Vice President Finance and
Assistant Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dennis M. Mullen and Earl L. Powers, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
<PAGE>
21
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
SIGNATURE TITLE DATE
<S> <C> <C> <C>
/s/ Bruce R. Fox President and Director August 19, 1998
(BRUCE R. FOX)
/s/ Steven D. Koinzan Treasurer and Director August 19, 1998
(STEVEN D. KOINZAN)
/s/ Tom R. Croner Secretary and Director August 19, 1998
(TOM R. CRONER)
/s/ Dale W. Burmeister Director August 19, 1998
(DALE W. BURMEISTER)
/s/ Robert V. Call, Jr. Director August 19, 1998
(ROBERT V. CALL, JR.)
/s/ Glen Lee Chase Director August 19, 1998
(GLEN LEE CHASE)
/s/ Kenneth M. Dahlstedt Director August 19, 1998
(KENNETH M. DAHLSTEDT)
/s/ Robert DeBadts Director August 19, 1998
(ROBERT DEBADTS)
/s/ Kenneth A. Mattingly Director August 19, 1998
(KENNETH A. MATTINGLY)
/s/ Allan W. Overhiser Director August 19, 1998
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director August 19, 1998
(PAUL E. ROE)
/s/ Darell Sarff Director August 19, 1998
(DARELL SARFF)
/s/ Stephen R. Wright General Manager August 19, 1998
(STEPHEN R. WRIGHT) (Principal Executive Officer)
/s/ Earl L. Powers Vice President Finance August 19, 1998
(EARL L. POWERS) and Assistant Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
HARRIS
BEACH &
WILCOX
A LIMITED LIABILITY
PARTNERSHIP
ATTORNEYS AT LAW
THE GRANITE BUILDING
130 EAST MAIN STREET
ROCHESTER, N.Y.
14604-1687
(716) 232-4440
September 15, 1998
Pro-Fac Cooperative, Inc.
90 Linden Oaks
Rochester, New York 14603
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
We have acted as your counsel in connection with a Registration Statement
on Form S-2 to be filed by you with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933 as amended. Such
Registration Statement may be amended, from time to time, by one or more
amendments at the request of the Commission, or on your own initiative, either
before or after its effective date. The Registration Statement as so amended or
to be amended, covers the retains (the "Retains") and the shares of preferred
stock, liquidation preference $25 (the "Preferred Stock"), of Pro-Fac referred
to therein.
We have examined originals or copies, identified to our satisfaction, of
such documents and records of Pro-Fac, and such other documents and records as
we have deemed necessary, as a basis for the opinions hereinafter expressed.
Based on the foregoing, and having regard for such legal considerations
as we have deemed relevant, we are of the opinion that, subject to an order or
other appropriate action by the Commission declaring the Registration Statement
effective, the Retains and Preferred Stock of Pro-Fac, when issued in accordance
with the terms and conditions set forth in the prospectus forming part of the
Registration Statement to be filed with the Commission (the "Prospectus"), will
be legally issued, fully paid and non-assessable, except that under the New York
Cooperative Corporations Law each member and each director of Pro-Fac may be
personally liable, jointly and severally, for certain amounts owed to employees
for services rendered to Pro-Fac, as described in the Prospectus under the
caption "Description of Pro-Fac Securities - Common Stock," and except that the
amount of outstanding Non-Qualified Retains may be subject to adjustment
subsequent to issuance, as described in the Prospectus under the caption
"Description of Pro-Fac Securities - Retains."
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
HARRIS BEACH & WILCOX LLP
By: /s/ Catherine A. King
Catherine A. King
HARRIS
BEACH &
WILCOX
A LIMITED LIABILITY
PARTNERSHIP
ATTORNEYS AT LAW
THE GRANITE BUILDING
130 EAST MAIN STREET
ROCHESTER, N.Y.
14604-1687
(716) 232-4440
September 15, 1998
Pro-Fac Cooperative, Inc.
90 Linden Oaks
Rochester, New York 14625
Re: Registration Statement on Form S-2
File No.: 333-7686
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Pro-Fac
Cooperative, Inc. (the "Company" or "Pro-Fac") in connection with the Company's
Registration Statement on Form S-2 (the "Registration Statement") to be filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, including the prospectus forming a part thereof (the "Prospectus") and
any subsequent pre-effective amendments, post-effective amendments, prospectus
supplements or exhibits thereto, relating to the public offering of retains and
shares of the preferred stock, liquidation preference $25. This opinion relates
to the federal income tax consequences that are likely to be material to a
holder of Pro-Fac's common stock.
We have reviewed the Registration Statement and the documents incorporated
by reference therein (the "Incorporated Documents") that describe the Company
and its investments and activities. We have relied upon the representations of
an officer of the Company regarding the manner in which the Company and its
affiliates have been and will be owned and operated. We have neither
independently investigated nor verified such representations, and this opinion
is expressly conditioned upon the accuracy of such representations. We assume
that the Company has been and will be operated in accordance with applicable
laws and the terms and conditions of applicable documents and that the
descriptions of the Company and its actual and proposed activities, operations
and governance set forth in the Incorporated Documents continue to be true,
correct and complete.
In rendering the following opinion, we have examined the Company's Restated
Certificate of Incorporation and the By-Laws of the Company and such other
records, certificates and documents, each as amended, as we have deemed
necessary or appropriate for purposes of rendering the opinion set forth herein.
<PAGE>
2
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We also
have assumed, without investigation, that all documents, certificates,
representations, warranties and covenants on which we have relied in rendering
the opinion set forth below and that were given or dated earlier than the date
of this letter continue to remain accurate, insofar as relevant to the opinion
set forth herein, from such earlier date through and including the date of this
letter and that all representations made to the "best knowledge" of any
person(s), or subject to similar qualification, are true and complete as if made
without such qualification. Notwithstanding the foregoing, nothing has come to
our attention that would cause us to question the accuracy or completeness of
the foregoing assumptions.
The opinion set forth below is based upon the Internal Revenue Code of
1986, as amended (the "Code"), the income tax regulations and procedures and
administration regulations promulgated thereunder and existing administrative
and judicial interpretations thereof, all as they exist at the date of this
letter. All of the foregoing statutes, regulations and interpretations are
subject to change, in some circumstances with retroactive effect; any changes to
the foregoing authorities might result in modifications of our opinion contained
herein.
Based upon and subject to the foregoing, we are of the opinion that the
statements in the Prospectus set forth under the caption "Tax Matters"
concerning our opinions as to the federal income tax consequences that are
likely to be material to a holder of the Company's common stock, accurately
reflect our opinions on the issues discussed and, to the extent such discussion
refers to the opinion of this firm, we adopt and incorporate all such opinions,
subject to the assumptions and limitations set forth herein.
This opinion is rendered with respect to the federal law of the United
States and does not address the laws of any other jurisdiction. We express no
opinion other than that expressly set forth herein. Our opinion is not binding
on the Internal Revenue Service (the "IRS"), and the IRS may disagree with the
opinion contained herein. Except as specifically discussed above, the opinion
expressed herein is based upon the federal law as it currently exists.
Consequently, future changes in the law may cause the federal income tax
treatment of the transactions described herein to be materially and adversely
different from that described above.
We consent to being named as counsel to the Company in the Prospectus,
to the references in the Prospectus to our firm and to the inclusion of a copy
of this opinion letter as an exhibit to the Registration Statement.
Very truly yours,
Harris Beach & Wilcox, LLP
/s/ David M. Mehalick
David M. Mehalick, Partner of the Firm
PRO-FAC COOPERATIVE, INC.
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal Year Ended
June 25, June 24, June 29, June 28, June 27,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Computation Of Ratio Of Earnings To Fixed Charges and
Preferred Dividends
Income/(loss) before taxes, dividends and allocation of net proceeds
from current operations $23,698 $22,525 $(22,602) $13,620 $24,970
Deduct - Equity in undistributed earnings of CoBank (1,541) (1,288) (1,532) (1,143) (715)
------- ------- -------- ------- -------
22,157 21,237 (24,134) 12,477 24,255
------- ------- -------- ------- -------
Fixed charges:
Interest expense 11,587 29,035 41,998 36,473 30,767
Rentals (A) 0 800 1,420 1,457 1,593
------- ------- -------- ------- -------
Total fixed charges 11,587 29,835 43,418 37,930 32,360
------- ------- -------- ------- -------
Adjusted earning/(loss) before fixed charges $33,744 $51,072 $ 19,284 $50,407 $56,615
======= ======= ======== ======= =======
Preferred dividends $ 3,717 $ 4,348 $ 8,523 $ 5,503 $ 5,880
Add - Adjustment to reflect preferred dividends on a pretax basis1 0 0 4,391 2,835 3,166
------- ------- -------- ------- -------
Preferred dividends on a pretax basis 3,717 4,348 12,914 8,338 9,046
Fixed charges 11,587 29,835 43,418 37,930 32,360
------- ------- -------- ------- -------
Total $15,304 $34,183 $ 56,332 $46,268 $41,406
======= ======= ======== ======= =======
Ratio of earnings to fixed charges and preferred dividends 2.2:1 1.5:1 (B) 1.1:1 1.4:1
======= ======= ======== ======== ========
Computation of Pro Forma Ratio of Earnings to
Fixed Charges and Preferred Dividends
Adjusted earnings/(loss) before fixed charges, as above $33,744 $51,072 $ 19,284 $50,407 $56,615
======= ======= ======== ======= =======
Total fixed charges and pretax basis preferred dividends, as above $15,304 $34,183 $ 56,332 $46,268 $41,406
------- ------- -------- ------- -------
Pro forma preferred dividends assuming all "Retains" were converted into
preferred stock (retained earnings allocated
to members times the maximum dividend rate permitted by law
of 12 percent) 4,218 5,325 4,422 4,070 4,038
Add - Adjustments to reflect preferred dividends on a pretax basis1 0 0 2,278 2,097 2,174
------- ------- -------- ------- -------
4,218 5,325 6,700 6,167 6,212
------- ------- -------- ------- -------
Pro forma total fixed charges and pretax basis preferred dividends $19,522 $39,508 $ 63,032 $52,435 $47,618
======= ======= ======== ======= =======
Pro forma ratio of earnings to fixed charges and preferred dividends 1.7:1 1.3:1 (C) (C) 1.2:1
======= ======= ======== ======== =======
<FN>
(A) Rentals deemed representative of the interest factor included in rent
expense.
(B) In the fiscal year ended June 29, 1996, the earnings were inadequate by
$37,048 to cover fixed charges and pretax-basis preferred dividends.
(C) In fiscal years ended June 29, 1996 and June 28, 1997, the earnings were
inadequate by $43,748 and $2,028, respectively, to cover the amount of
fixed charges and pretax-basis preferred dividends which would have been
declared and paid if all retained earnings allocated to members' retains at
the end of each fiscal periods had been converted to preferred stock at the
beginning of the period at the maximum dividend permitted by law.
1 As a tax-exempt Cooperative until the acquisition of Agrilink, cash
dividends paid were an allowable deduction for computation of taxable
income.
</FN>
</TABLE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-2 of our report dated
July 31, 1998 appearing on page 25 of the Annual Report on Form 10-K of Pro-Fac
Cooperative, Inc. for the year ended June 27, 1998. We also consent to the
application of such report to the Financial Statement Schedule for the three
years ended June 27, 1998 listed under Item 14(a) of Pro-Fac Cooperative, Inc.'s
Annual Report on Form 10-K for the year ended June 27, 1998 when such schedule
is read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this Financial Statement
Schedule. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 14, 1998
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-2 of our report dated
July 31, 1998 relating to the consolidated financial statements of Agrilink
Foods, Inc. appearing on page 22 of the Annual Report on Form 10-K of Agrilink
Foods, Inc. for the year ended June 27, 1998. We also consent to the application
of such report to the related Financial Statement Schedule for the three years
ended June 27, 1998 listed under Item 14(a) of Agrilink Foods' Annual Report on
Form 10-K for the year ended June 27, 1998 when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this Financial Statement Schedule. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 14, 1998
